Atul Limited & Anr Vs Assistant Commissioner

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. Heard learned advocate Mr. Abhay Y. Desai for the petitioners and learned advocate Ms. Hetvi H. Sancheti for respondents.

2. Since all these petitions pertain to refund claim of the same petitioner for different periods, they have been heard together and would be disposed of by this common judgment.

3. Rule returnable forthwith. Learned advocate Ms. Hetvi Sancheti waives service of notice of rule on behalf of the respondents.

4. For the sake of convenience facts are recorded from Special Civil Application No.9876 of 2025.

5. Brief facts of the case are that the petitioner no.1 company is engaged in the manufacture and sale of various chemical products including the supply of the said products to SEZ units as well as exports outside India. The petitioner is registered under the provisions of the Central/State Gods and Service Tax Act, 2017 (for short ‘the GST Act’) in the State of Gujarat.

6. In order to manufacture the finished products, the petitioner requires power in the form of electricity. Therefore, in October, 2020 the petitioner purchased coal from the market to generate its own captive power via the captive power plant for use in the manufacturing activity.

7. It is the case of the petitioner that section 8 of the Goods and Service Tax (Compensation to States) Act, 2017 (For short “the Cess Act”) provides for levy of Cess on the supply of coal at the rate of Rs.400/- per ton and therefore, the vendors supplying the coal to the petitioner charged the said levy and collected the Cess from the petitioner.

8. The petitioner company, therefore, availed the tax credit of the Cess charged on the inward supplies of coal and filed the refund claim of the accumulated Cess credit in respect of the zero-rated supplies made with payment of Integrated Goods and Service Tax (for short ‘IGST’). The petitioner availed the Cess credit amounting to Rs. 69,13,084/- on the inward supplies of coal in the GSTR-3B return filed for the month of October, 2020. The petitioner accordingly filed a refund application on 25.12.2021 under section 11 of the Cess Act, 2017 read with Section 16(3) of the IGST Act, 2017 as well as Section 54(3) of the GST Act along with Rule 89(4) of the CGST Rules, 2017 in FORM RFD 01 seeking the refund of the accumulated Cess credit amounting to Rs. 2,30,206/- which according to the petitioner is proportionate to the zero-rated supplies made with payment of IGST but without payment of Cess since the Cess is not leviable on the finished goods in question.

9. Respondent no.1 Additional Commissioner CGST & Central Excise Appeals, Surat issued a show cause notice in FORM RFD 08 dated 10.01.2022 seeking to reject the refund claim on the ground that the refund of the accumulated Cess credit can be claimed only in respect of zero-rated supplies made without payment of IGST and since the zero-rated supplies have been made with payment of IGST, the refund of the accumulated Cess credit would not be admissible.

10. The petitioner company responded against the impugned show cause notice stating that the zero-rated supplies made with payment of IGST but without payment of Cess as Cess is not leviable on the finished products, the same is required to be considered to be zero- rated supplies made without payment of Cess as far as the refund of the accumulated Cess credit is concerned and hence prayed to allow the refund claim.

11. Respondent no.1 passed the order in FORM RFD 06 dated 08.02.2022, rejecting the refund claim of the petitioner.

12. The petitioner company thereafter filed the appeal against the impugned refund rejection order before the respondent no.2 in accordance with Section 107(1) of the GST Act which came to be rejected vide order dated 28.02.2023, relying on the impugned circular No.45/19/2018-GST dated 30.05.2018 and Circular No.125/44/2019-GST dated 18.11.2019.

13. Petitioner company being aggrieved with the impugned orders have preferred the present petitions.

14. The issue involved in all these petitions is simialr and therefore, facts of each petition are not recorded for the sake of brevity, however details of refund claimed by the petitioner along with amount of refund, tax period and date of orders of rejection of the refund claim are enumerated below in the tabular form:

15. Learned advocate Mr. Abhay Desai for the petitioner, relying on sections 9 and 11 of the Cess Act, submitted that the said sections seeks to apply the provisions of the GST Act, including the GST Rules mutatis mutandis in relation to the levy and collection of the Cess as well as claim of input tax credits of such Cess and refunds thereof.

16. Learned advocate Mr. Desai further submitted that the provisions related to the ailment of the tax credits contained under section 16 of the GST Act as well as provisions related to the refunds of the accumulated credits contained under section 16 of the IGST Act, 2017 read with Sec.54 of the GST Act as well as Rule 89 of the CGST Rules, 2017, shall apply mutatis mutandis to the claiming of the tax credits of the Cess as well as claiming of the refunds of the accumulated credits of the said Cess.

17. Learned advocate Mr. Desai would further submit that Section 16(1) of the GST Act provides for the entitlement of the tax credit in respect of all the inward supplies used or intended to be used in the course of furtherance of business. He further submitted that the aforesaid provisions applied in the context of the Cess Act by virtue of Sec.11 of the said Act shall entail that the taxpayer is entitled to the credit of the Cess charged on inward supplies used in the course of furtherance of business and the petitioner, therefore, is undisputedly entitled to the credit of the Cess paid on the inward supplies of the coal since the same is used by the petitioner in the course of manufacture and sale of finished products.

18. It was submitted by learned advocate Mr. Abhay Desai that the issue is now no more res integra in view of the decision of this Court in the case of Patson Papers Pvt Ltd vs. Union of India. rendered in Special Civil Application No. 26250 of 2022 which was followed by this Court in the decision in case of Atul Ltd. v. Union of India (Judgment dated 24.07.2025 rendered in Special Civil Application No. 19949 of 2022 and allied matters)

19. Per contra, learned advocate Ms. Hetvi Sancheti for the respondent, conceded to the fact that the issue is now no more res integra pursuant to the decision of this Court in Patson Papers (supra) and in case of Atul Ltd. (supra) and therefore, appropriate orders may be passed.

20. Having heard the learned advocates appearing for the respective parties and having perused the material on record, the issue on hand is no more res integra pursuant to the decision of this Court in case of Atul Ltd.(supra), wherein following the decision in case of Patson Papers (supra), the writ petitions were disposed of with a direction to the respondent to process refund application of the petition to sanction the refund of the CESS amount claimed on unutilised tax credit observing as under:

“6 Having heard the learned advocates appearing for the respective parties and having perused the material on record, it is not in dispute that this Hon’ble Court has categorically held that the respondent has rejected the refund claim in a wrong manner by misinterpreting the Circular No. 45/19/18 dated 30.05.2018 and Circular No. 125/44/19 dated 18.11.2019. It is further held that the petitioner in such cases can claim for purchase of coal used for manufacturing of goods exported being zero-rated supplies. It was further held that the petitioner may have paid the IGST on the goods exported by it, however, the petitioner was not required to pay any compensation cess as the goods manufactured by the petitioner are exempted from the levy of tax.

6.1 This Hon’ble court in paras 6,7,8,18,19,20 and 21 of the said decision has held as under:

“6 The petitioner is a public limited company engaged in the business of manufacture and sale of dyes, dye intermediate, chemicals etc. The petitioner purchased coal for use in its manufacturing process. The petitioner also paid Cess under the Cess Act in addition to the GST for purchase of the coal. It is the case of the petitioner that while coal purchased by the petitioner is liable to Cess, however, the finished goods manufactured by the petitioners are not liable to GST compensation Cess under the Cess Act. Therefore, when the finished goods manufactured by the petitioner are exported outside the country on payment of IGST as permitted by Section 16 of the IGST Act, the petitioner is entitled to the refund of such IGST, however, the petitioner is not required to pay Cess at the time of export of the goods and as the exports being zero rated supply and unutilized input tax credit being fully attributable to exports of the petitioner, the petitioner claimed refund of unutilized input tax credit comprising of the GST compensation Cess which was initially granted to the petitioner by the respondent-authorities

7. However, subsequently, the show cause notices were issued proposing to reject the refund applications on the basis of the Circular No. 125/44/2019 dated 18/11/2019 read with para-5 of Circular No 45/19/2018 dated 30/05/2018 wherein it is stated that the refund of unutilized Input Tax Credit qua Cess will be available only if the export is without payment of tax and as the petitioner has paid IGST on the goods which were exported, the refund of Cess as well as the relatable to the inputs utilized for production of the goods which are exported was held to be inadmissible. The petitioner in the reply clarified that the petitioner has not paid any GST compensation Cess on the goods exported and as such goods being zero rated supply, the petitioner is entitled to the refund of Cess as the provisions of the Cess Act shall apply mutatis mutandis as the same would be applicable in case of the GST. Respondent no 3 also issued notices proposing to withdraw the refund of Cess already granted to the petitioner

8. Being aggrieved, the petitioner has challenged such show cause notice proposing to recover the refund already sanctioned as well as rejecting the refund applications filed by the petitioners for refund of the Cess paid while purchasing the coal which was utilized for manufacture of the goods which are exported by the petitioner.

XXX XXX XXX

18. Having heard the learned advocates appearing for both the parties and considering the facts and material available on the record, following undisputed facts emerge.

(1) The petitioners have purchased the coal on payment of Cess and as such the petitioner is entitled to the Input Tax Credit on such Cess amount. The petitioner has utilized the coal purchased for manufacture of the goods which are exported.

(2) The petitioner paid the IGST at the time of export of the goods which was refunded by the Custom Authorities as per the provision of Section 54(3) read with Section 16 of the IGST Act being a zero rated supply.

(3) The petitioner therefore filed the refund claim application to claim the Input Tax Credit of the Cess amount which was paid by the petitioner while purchasing the coal and as such coal was utilized for manufacture of exported goods

19. In view of the above, it would be germane to refer to the relevant provisions of the CGST Act and the IGST Act as well as the Cess Act.

19.1. Section 54(3) of the CGST Act reads as under

“Section 54 – Refund of tax-

(1)………

(2)………

(3)………

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

(i) zero rated supplies made without payment of tax;

(i) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

PROVIDED also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.”

19.2. Section 16 of the IGST Act reads as under “Section 16. Zero rated supply.-

(1) “zero rated supply means any of the following supplies of goods or services or both, namely:-

(a) export of goods or services or both; or

(b) supply of goods or services or both [for authorised operations) to a Special Economic Zone developer or a Special Economic Zone unit.

(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply.

[(3) A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed PROVIDED that the registered person making zero rated supply of goods shall, in case of non-realization of sale proceeds, be liable to deposit the refund so received under this sub-section along with the applicable interest under section 50 of the Central Goods and Services Tax Act within thirty days after the expiry of the time limit prescribed under the Foreign Exchange Management Act, 1999 (42 of 1999) for receipt of foreign exchange remittances, in such manner as may be prescribed

(4) The Government may, on the recommendation of the Council, and subject to such conditions. safeguards and procedures, by notification, specify

(1) a class of persons who may make zero rated supply on payment of integrated tax and claim refund of the tax so paid Lin accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder].

(ii) a class of goods or services (or both, on zero rated supply of which, the supplier may pay integrated tax and claim the refund of tax so paid in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder]]

L(5) Notwithstanding anything contained in sub sections (3) and (4), no refund of unutilised input tax credit on account of zero rated supply of goods or of integrated tax paid on account of zero rated supply of goods shall be allowed where such zero rated supply of goods are subjected to export duty]

19.3. Section 11(2) of the Cess Act reads as under “Section 11 Other provisions relating to cess

(1)

(1) The provisions of the Integrated Goods and Services Tax Act, and the rules made thereunder. including those relating to assessment, input tax credit, non-levy, short-levy, interest, appeals, offences and penalties, shall, mutatis mutandıs, apply in relation to the levy and collection of the cess leviable under section 8 on the inter-State supply of goods and services, as they apply in relation to the levy and collection of integrated tax on such inter-State supplies under the said Act or the rules made thereunder PROVIDED that the input tax credit in respect of cess on supply of goods and services leviable under section 8, shall be utilised only towards payment of said cess on supply of goods and services leviable under the said section

20. The relevant paragraphs of the circulars relied upon by the respondents also reads as under

20.1. Para-5 of Circular No.45/19/2018 dated 30/05/2018 reads as under

“5. Refund of unutilized input tax credit of compensation cess availed on inputs in cases where the final product is not subject to the levy of compensation cess:

5.1 Doubts have been raised whether an exporter is eligible to claim refund of unutilized input tax credit of compensation cess paid on inputs, where the final product is not leviable to compensation cess. For instance, cess is levied on coal, which is an input for the manufacture of aluminum products, whereas cess is not levied on aluminum products

5.2 In this regard, section 16(2) of the Integrated Goods and Services Tax Act, 2017 (IGST Act for short) states that, subject to the provisions of section 17(5) of the CGST Act, credit of input tax may be availed for making zero rated supplies Further, as per section 8 of the Goods and Services Tax (Compensation to States) Act, 2017, (hereafter referred to as the Cess Act), all goods and services specified in the Schedule to the Cess Act are leviable to cess under the Cess Act, and vide section 11 (2) of the Cess Act, section 16 of the IGST Act is mutatis mutandis made applicable to inter-State supplies of all such goods and services. Thus, it implies that all supplies of such goods and services are zero rated under the Cess Act. Moreover, as section 17(5) of the CGST Act does not restrict the ailment of input tax credit of compensation cess on coal, it is clarified that a registered person making zero rated supply of aluminum products under bond or LUT may claim refund of unutilized credit including that of compensation cess paid on coal.

5.3 Such registered persons may also make zero-rated supply of aluminum products on payment of integrated tax but they cannot utilize the credit of the compensation cess paid on coal for payment of integrated tax in view of the proviso to section 11(2) of the Cess Act, which allows the utilization of the input tax credit of cess, only for the payment of cess on the outward supplies. Accordingly, they cannot claim refund of compensation cess in case of zero-rated supply on payment of integrated tax.”

20.2. Para-42 of Circular No.125/44/2019 dated 18/11/2019 reads as under:

“Guidelines for claims of refund of Compensation Cess

42. Doubts have been raised whether a registered person is eligible to claim refund of unutilized input tax credit of compensation cess paid on inputs, where the zero-rated final product is not leviable to compensation cess. For instance, cess is levied on coal, which is an input for the manufacture of aluminums products. whereas cess is not levied on aluminum products. In this context, attention is invited to section 16(2) of the Integrated Goods and Services Tax Act, 2017 (hereafter referred to as the “IGST Act”) which states that, subject to the provisions of section 17(5) of the CGST Act, credit of input tax may be availed for making zero rated supplies. Further, section 16 of the IGST Act has been mutatis mutandis made applicable to inter-State supplies under the Cess Act vide section 11 (2) of the Cess Act. Thus, it implies that input tax credit of Compensation Cess may be availed for making zero-rated supplies. Further, by virtue of section 54(3) of the CGST Act, the refund of such unutilized ITC shall be available. Accordingly, it is clarified that a registered person making zero rated supply of aluminum products under bond or LUT may claim ref refund of unutilized credit including that of compensation cess paid on coal. Such registered persons may also make zero-rated supply of aluminum products on payment of Integrated tax but they cannot utilize the credit of the compensation cess paid on coal for payment of Integrated tax in view of the proviso to section 11(2) of the Cess Act, which allows the utilization of the input tax credit of cess, only for the payment of cess on the outward supplies.”

21. On a conjoint reading of above provisions of the GST Act, IGST ACT and the GST (Compensation to State) Act, 2017 (for short ‘the Cess Act’) as well as para-5 of the Circular No.45/19/2018 and para-42 of Circular No 125/44/2019, the respondent authority appears to have misinterpreted the circulars while rejecting the refund claim applications filed by the petitioner for refund of input tax credit of cess paid by the petitioner for purchase of coal utilized for manufacture of the goods which are exported. As per the provision of Section 54(3) of the GST Act read with Section 16(3) of the IGST Act and Section 11(2) of the Cess Act, the petitioner can claim the refund of unutilized input tax credit for purchase of coal used for manufacture of goods exported being zero rated supply The petitioner has paid IGST on the goods exported by it, however, the petitioner was not required to pay any compensation cess as the goods manufactured by the petitioner are exempted from the levy of compensation cess Therefore, while applying the above provisions, admittedly the compensation cess was not paid at the time of export of goods by the petitioner, the petitioner, therefore, is entitled to refund of input tax credit of the compensation cess paid on purchase of the coal utilized for the purpose of manufacture of the goods which are exported as zero rated supply on payment of IGST by the petitioner. Therefore, reliance placed by the respondent on para-42 of the Circular No. 125/44/2019 dated 18/11/2019 is misplaced because the said circular was issued clarifying the eligibility to claim refund of unutilized input tax credit of compensation cess paid on input, where the zero rated final product is not leviable with compensation cess. However, the circular refers to the provision of Section 16(2) of the IGST Act that the registered person making zero rated supply of aluminum products under bond or may claim refund of unutilized credit including that of compensation cess paid on coal. The circular further clarifies that when the registered person make a zero rated supply of product on payment of integrated tax, they cannot utilize the credit of the compensation cess paid on coal for payment of Integrated tax in view of the proviso to Section 11(2) of the Cess Act, as the said proviso allows the utilization of the input tax credit of cess, only for the payment of cess on the outward supplies. However, when the petitioner has paid the IGST under Section 16(3) of the IGST Act on the zero rated supply and refund is claimed by the payment of such IGST, the petitioner admittedly would not be able to utilize input tax credit of cess as cess is not payable on the zero rated supply Therefore, proviso to Section 11(2) of the Act would not be applicable in the facts of the case and the petitioner would be entitled to refund of the unutilized input tax credit on cess paid on purchase of coal utilized for the purpose of manufacture of goods which are exported.”

7 The facts and law enumerated in the case of Patson Papers (supra), would be squarely applicable to the facts of the present case. In Patson Papers(supra), the company was engaged in the business of manufacturing of dyes and there was purchased of coal for the manufacturing process. The Company was involved in production of finished goods, which was not liable to GST. Finished goods were exported being zero rated supply. Therefore, the petitioner in the case of Patson Papers(supra), had applied for refund of compensation cess on purchase of coal for manufacturing of the finished goods.

7.1 In the instant case, the Company is also engaged in manufacturing and sale of various chemical products on supply to SEZ as well as for export and for the production of the same, coal was purchased from open market and generated its own captive power via captive power plant. Therefore, cess charge invoice supplies were demanded by way of refund case, the same was rejected by relying on Circular No. 45/19/2018-GST dated 30.05.2018 as well as Circular No. 125/44/2019-GST dated 18.11.2019.

7.2 Therefore, the facts of the present case and that being in the case of Patson Papers(supra), are absolutely identical and the law envisaged therein would be squarely applicable to the facts of the present case.

8 In view of the decision and law laid down by this Court in the case of Patson Papers (supra), the present petitions stands allowed. The respondent is directed to process refund application of the petitioner to sanction the refund of the CESS amount claimed on unutilized tax credit. The impugned orders in both writ petitions passed by the respondent are quashed and set aside. Rule is made absolute to the aforesaid extent.”

21. In view of above dictum of law, the petitions stand allowed. The respondent is directed to process refund application of the petitioner to sanction the refund of the CESS amount claimed on unutilized tax credit. The impugned orders in all the writ petitions passed by the respondents are quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.